Weigh the Risks and Benefits of Investments
Investment Type: Stocks
When you buy stocks, you become part owner of the company selling the stocks.
If the company does not do well, you may lose your money. This is not a good investment option if you cannot afford to lose money.
If the company does well, you might receive periodic dividends. Dividends are part of the company’s profit that it gives you as a shareholder. Another way to make money on stocks is to sell them for more than you paid. If the company is doing well, other persons may be interested in buying your stocks at a higher price than the one you paid.
Investment Type: Bonds
When you buy bonds, you are loaning money to a corporation or to the government for a certain period of time, called a “term."
Bond terms vary between a few months and 30 years. Buying bonds is not a good investment if you need your money next month. The company might not be able to repay the loan. Corporate bonds have several degrees of risk.
Buying savings bonds is an easy and safe way to save small amounts of money; they are usually bought to save for your children’s education. However, they can be used for any other purpose. U.S. bonds are a long term investment option backed by the U.S. government.
Investment Type: Mutual Investment Funds
A mutual investment fund is made up of money collected and managed professionally by a group of investors. A mutual investment fund manager invests your money in a combination of different stocks, bonds, and other products.
Because you can diversify your investment there is generally less risk than in buying stocks and certain bonds.
By combining your funds with other investors in a common investment fund you can diversify even a small investment, which lowers risk. Mutual investment funds generally earn more in the long term than a regular savings account.